Power Struggle

May 7th 2009

From The Economist print edition

WHEN Anne Lauvergeon arrived in 1999 as the new boss of COGEMA, a French state-owned uranium-mining and fuel-recycling firm, it was at a low point.
Nuclear power was so unpopular that some employees would not admit to working for the company. A friend told her taking the job would be professional suicide. When she first visited its headquarters, with decor unaltered since the 1970s all chrome and dark-wood furniture, and long corridors of orange-laminated cupboards she realised it would take a huge effort to drag the firm into the 21st century.

But Ms Lauvergeon believed in nuclear power and was convinced that it could be done. COGEMA became Areva after a merger with Framatome, a maker of nuclear reactors, in 2001. There was pressure to shut Framatome s main factory, but Ms Lauvergeon refused and it continued to operate against the opinion of the world , as she puts it. Areva is now the only company to supply all stages of the nuclear-energy cycle, and it has expanded into America, Britain, China and elsewhere. It is in a unique position to benefit from nuclear s expected revival20as a desirable low-carbon source of electricity.

Yet despite this turnaround Ms Lauvergeon faces a struggle to keep her job.
Two things have recently gone badly wrong for her. Areva s flagship project to build a new type of nuclear reactor for Finland s main utility, Teollisuuden Voima Oyj (TVO), is late and over-budget, forcing Areva to set aside 1.7 billion ($2.4 billion) against profits up to December 2008.
and its partner, Siemens, a German engineering firm, agreed in 2003 to build the Finnish plant for a fixed sum of 3 billion a price that was set too low, say those in the industry, so as to fend off rivals. Areva and Siemens blame TVO for the delays and extra costs, and the three firms are now embroiled in legal action. All this has raised doubts about Ms Lauvergeon s ability to oversee big industrial projects.

At home Ms Lauvergeon, who is known for her international profile and outlook, has strongly resisted government attempts to create a French nuclear-energy champion by merging Areva with Alstom, a French engineering firm. She argued that the merger lacked industrial logic and would alienate Siemens, with which Areva has had a joint venture since 2001. So it looked bad for her when Siemens abruptly said in January that it would exit the partnership. Worse, she received the news in an e-mail from Siemens, after the French government had been informed. S ome question whether Ms Lauvergeon, a famously tough operator, managed the relationship smoothly.
She used Siemens against the government, but didn t treat the Germans well enough, says a person familiar with the situation. For its part, Areva blames poor Franco-German diplomatic relations for Siemens s exit.

Paradoxically some of Ms Lauvergeon s headaches may stem from her success in consolidating her power at Areva. It was as an adviser to Fran ois Mitterrand, then president of France, that she learnt the art of politics, securing the post at the age of 31, a few years after leaving the Ecole des Mines, a distinguished postgraduate engineering school. Ms Lauvergeon has managed to run Areva in a remarkably autonomous fashion over the past few years, insiders say. Having a government research body as her main shareholder may have given her far more freedom than private shareholders would have granted her. But it means the government is now unsure whether the situation in Finland is a one-off, or whether Areva s order book contains other nasty surprises that could damage the firm s profits.

On April 30th the government appointed Jean-Cyril Spinetta, chairman of Air France-KLM, as Areva s new chairman. It hopes Mr Spinetta, a respected industrial veteran, will be in a stronger position to oversee Areva than his predecessor. Mr Spinetta has much in common with Ms Lauvergeon: like

her, he
came to business in the traditional French manner, via the civil service, and both hail from the left. But that may make it easier for him to fire Ms Lauvergeon, as it would be impossible for her to blame party politics for the decision. Mr Spinetta is expected to conduct a thorough review of Areva s financial position and order book.

Vying with Nuclear Nicolas

Atomic Anne, as she is known in France, is nothing if not a survivor.
Reports of her imminent removal proved exaggerated in 2006. But if she stays this time she may be forced into an important concession. Areva needs some
12 billion or so of extra funding over the next four years for its own investment plans and to finance the repurchase of Siemens s stake. A merger with Alstom is unlikely in the near term, mainly because Alstom could not afford it. But the government is said to want Areva to dispose of its electricity transmission-and-distribution division, which it was forced to buy for 950m as part of a rescue of Alstom in 2004. (It may now be worth 5
billion.) Ms Lauvergeon opposes a sale, arguing that the division helps Areva sell nuclear reactors. Instead she hopes that Areva will be allowed to launch a share offering. Nicolas Sarkozy backed this plan in 2004 when he was finance minister, she observes, though it was later cancelled. We will have to see what he decides=2 0as president of France, she says.

Nobody doubts Ms Lauvergeon s achievement in helping to rehabilitate nuclear power. She is largely responsible for the lack of opposition to Mr Sarkozy s announcement last year, with little public debate, that France would build a second new reactor. The strongest opponents of nuclear power around the world, Ms Lauvergeon points out, are women; it may be that having a woman at the top of a largely male industry has helped. If Mr Spinetta does indeed unearth unpleasant surprises in Areva s books in the next few weeks, the industry could lose one of its most passionate advocates. Ms Lauvergeon s departure would also give utilities around the world more reason to worry about the cost and difficulties of building new nuclear reactors. Much depends, therefore, on whether Atomic Anne has got her numbers right.